Err, no

Thorstein Veblen was a cranky economist of Norwegian descent who coined the phrase “conspicuous consumption” and theorized that certain products could defy the economic laws of gravity by stoking more demand with superhigh prices.

A Veblen Good is where the high price makes it more desirable. A Giffen Good is where a higher price increases effective demand.

iPhones are not Giffen Goods.

25 comments on “Err, no

  1. I have come to the conclusion that vast swathes of consumer expenditure nowadays are entirely down to purchasing an image of some sort and increasingly little to do with the actual efficiency/practicality of the item in question. Basic items/services that function perfectly well are ignored for flashier more expensive versions that do little more, but have greater bragging rights.

  2. I have come to the conclusion that vast swathes of consumer expenditure nowadays are entirely down to purchasing an image of some sort

    I’ve recently been thinking that about people who have kids. Not all, but certainly some.

  3. Jim,

    Huge amounts.

    What I’m not sure about is whether it works. Like, if you spend £10K more on a BMW or £50 more for a Tommy Hilfiger shirt, do you get a prettier girlfriend? And does this work for women for whom signalling wealth is almost irrelevant compared to looking hot?

    (and I’m not talking about a woman spending money on a dress that looks nice, just signalling stuff).

  4. Bloke on M4 : (and I’m not talking about a woman spending money on a dress that looks nice, just signalling stuff).
    It’s all signalling. Fair skin – I don’t have to work in the fields all day. Brown skin – I can afford to fly out to winter sun. Long elaborate fingernails – I don’t do manual labour. Fancy hair – I can afford to employ someone to do my hair. High heels (or bound feet in old China) – I don’t do physical labour.

  5. “vast swathes of consumer expenditure nowadays are entirely down to purchasing an image of some sort and increasingly little to do with the actual efficiency/practicality of the item in question. Basic items/services that function perfectly well are ignored for flashier more expensive versions that do little more, but have greater bragging rights.”

    Nowadays? There were similar complaints in the 50s and 60s, especially in the US.

  6. Jim said:
    “I have come to the conclusion that vast swathes of consumer expenditure nowadays are entirely down to purchasing an image of some sort”

    Does it matter?

    A purchase is a mixture of tangible and intangible benefits. Not generally my thing, but the point of a free market is it allows people to choose what makes them happy.

  7. dearieme
    “Nowadays? There were similar complaints in the 50s and 60s, especially in the US.”

    50s & 60s? There were medieval sermons against it. And sumptuary laws to try to stop it.

  8. I have come to the conclusion that 95% of the media are utterly, utterly clueless yet believe themselves experts. In everything.

  9. “A purchase is a mixture of tangible and intangible benefits. Not generally my thing, but the point of a free market is it allows people to choose what makes them happy.”

    Thats the thing, I don’t think it does make them happy……its like drugs, you get the short term hit from buying the flashy consumer good, but the hit soon subsides and you need another, and another and another.

  10. @Rob “I have come to the conclusion that 95% of the media are utterly, utterly clueless yet believe themselves experts. In everything.”

    Where did you find that 5%?

  11. Veblen wrote “the theory of the leisure class”, which is very perceptive about academics and others who would do anything to avoid being answerable to a paying customer

  12. One thing I think a lot of people haven’t caught up on is how little difference there is between cheap stuff and “luxury” stuff.

    There used to be a big difference when there was manual labour doing the manufacturing. Maybe Mercedes in the 1970s hired better operatives, or had more quality control people, but once you’ve got a robotic process, you don’t need that. You need to get the robots programmed right, and that infintely scales. Everyone can have a well made watch, car, TV. Maybe you get nicer upholstery but that’s about all.

  13. There’s still big difference in some areas price-wise. One notable example I have found is cookware. I have occasionally lashed out on a really top-quality saucepan, for example, and some of them are still going strong 25 years later. In that time, any number of cheap, thin aluminium ones have been and gone. The same goes for knives, both kitchen and utility. I doubt I’ll ever need to replace my KA-BAR or any of my SOG knives unless I lose them. Optics is another area where false economies can be made. A pair of Bushnell binoculars that cost 3x more than a pair of Celestrons will be >3x better.

  14. How many of us choose the cheapest option all the time?

    Back when I last purchased a brand new car the car was £9k, the cheapest at the time was under £5k new. Should I have gone for the lower price car or the one with the size, economy, space and options I wanted?

    That year there would have been hundreds of thousands of cars purchased that were higher than that under £5k.
    People decide for themselves.

  15. “One thing I think a lot of people haven’t caught up on is how little difference there is between cheap stuff and “luxury” stuff.”

    Very true.

    I think its one of the ironic things that the more the Left bang on about ‘inequality’ the more actually being richer doesn’t necessarily buy you better quality stuff. After all, can a millionaire have a better TV than a dustman? Not really, he could buy a diamond encrusted one, but its still a Chinese made TV underneath and works the same. A mobile phone uses the same network if it costs a fiver or is a new £1k iPhone. Very expensive cars are less reliable and costlier to run than cheap mainstream models.

    If a millionaire sat in the rain waiting for the AA to pick up his broken down Aston Martin while being passed by a factory worker in his reliable 10 yo VW is what passes for ‘inequality’ nowadays, lets have more of it I say.

  16. BiCR
    “A pair of Bushnell binoculars that cost 3x more than a pair of Celestrons will be >3x better.”

    Well, maybe, but they are both rather low end. You would pay a lot more for Zeiss or Swarovski than Nikon or Kowa but you need to have 20/20 vision to see the diffeence

  17. BiCR,

    “There’s still big difference in some areas price-wise. One notable example I have found is cookware. I have occasionally lashed out on a really top-quality saucepan, for example, and some of them are still going strong 25 years later. In that time, any number of cheap, thin aluminium ones have been and gone. ”

    Good point. There’s things which are simply cheaper because of raw materials or they really cut corners.

    It’s part of my job, but I nearly always buy expensive laptops. The cheap ones just aren’t made to last. They’ve got decent insides, but they don’t care about using good hinges, for instance. They’ll save pennies just to make them cheaper.

  18. @Bloke on M4

    “It’s part of my job, but…”

    There’s something in that.

    Minicab drivers have a good idea what car models are reliable and cheap to run.

    Cleaners know which brand of vacuum cleaner actually hoovers up the dirt effectively without getting clogged up on you.

    Workmen know what brands of tool are worth paying for.

  19. Expensive cars aren’t necessarily more or less reliable, but there is probably a floor price below which reliability gets a little frayed.

    What is typically true is that very fast cars (expensive usually but not necessarily absolutely expensive) are usually very expensive to run. The most expensive cars to run in a survey in the UK excluded exotica (sample numbers too low) but the most expensive were Audi RS models and BMW M series. They are exceptionally fast and their owners tend to use/abuse the power; and they are reasonably readily available.The large Mercedes hot models were up there too.

  20. Cars, cookware, tools, laptops (actually, desktops and servers as well), plus, of course, footwear – Cmdr Sam Vimes and his boots.

    There’s a, possibly, interesting additional effect – cheaper goods don’t take repairs well, if at all, and sometimes, ordinary preventative maintenance can be a right bastard to carry out.

    Now, a few years back, over at That Place With A Shit Site, Tim wrote a piece suggesting that a far as Google and TwatBook were concerned, the consumer surplus was quite possibly at least an order of magnitude higher than ordinarily assumed.

    If this is true, then what if it’s also true, and was always, for other goods as well? Producers would want to capture more of it, and there are at least a few ways they can, in aggregate, do so. One is to reduce the expected life of the product, and standardisation and automation help with this. The second is to avoid the first buyer doctrine, so more leasing or licensing type of deals, and additionally, we now have the concept of Minimum Viable Product.

    Consumers respond to this as well, so we get open source software, and the growth in eBay, Etsy and the various Facebook or Yahoo groups. So consumers are able to “mine” their household wealth more efficiently.

    This could pan out in any number of ways, but it’s interesting to note that the spread of taxes (things like IPT, APD) and the whole MOAR TAX! thing, coincides quite nicely.

  21. Ed Snack,

    “Expensive cars aren’t necessarily more or less reliable, but there is probably a floor price below which reliability gets a little frayed.”

    Having looked around, I think that beyond things like the new cheapo cars coming out of India, there’s not much to choose on reliability. A Kia comes with a 7 year, 100,000 mile warranty. A Toyota will last you for decades. Hyundais and Suzukis appear to be fine. Fix It Again Tony is no longer the experience of FIAT owners. Skoda jokes certainly don’t apply.

    The difference is now prestige, or interiors, or in the case of BMW, they seem to make cars that are more focussed on the driver.

    I’d avoid super luxury cars for reliability (like Maseratis, Aston Martins etc). Too small to warrant automating, or maybe, some people still think that’s better, but the result is that they use bad humans instead of good robots.

  22. Re: Bloke on M4

    The reason you want to avoid super rare car is that parts and repair are far less available than your run of the mill Volkswagen and Toyota.

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